National Insurance isn’t usually something we give much thought to apart from when we see it as another deduction on our payslips but as it has been in the news a bit lately, we thought it deserved a blog post all of its own.
Origins of National Insurance
The concept of National Insurance was first introduced through the National Insurance Act 1911 when for the first time, workers would be able to claim benefits based on contributions they and their employers had made. Employees had a card to which stamps were added that their employer got from the Post Office to prove their contributions. If they left that job, they took those cards to their new job and that’s why we still say ‘getting your cards’ when someone leaves a job and ‘paying the stamp’ about National Insurance in general.
The National Insurance scheme that was introduced in 1911 offered pensions, health and unemployment benefits for the first time and undoubtedly made a real difference to peoples’ lives, especially older widows.
Then, even while the Second World War was still raging, the idea of expanding National Insurance was first proposed and in 1948, the new Welfare State was launched which it was hoped, would help everyone of all classes from cradle to grave. This included, of course, the establishment of the National Health Service.
What is our National Insurance spent on?
National Insurance contributions are ringfenced for welfare spending and can’t be used for general government expenditure. As has been discussed a lot recently, it is used for funding the NHS and health and social care but also covers benefits such as Universal Credit, Statutory Sick Pay and entitlements such as the UK State Pension.
We all have a National Insurance Number (NINO) and our individual contributions are credited to our account as some of the benefits such as the State Pension are contributory; i.e. you can only claim them if you have previously contributed a sufficient amount.
Classes of National Insurance deductions
There are 4 main classes of National Insurance deductions:
- Class 1: payable by both employees and employers
- Class 2: a fixed weekly amount paid by the self-employed
- Class 3: voluntary top-ups for those who have missed some contributions
- Class 4: payable by the self-employed on a portion of their profits
National Insurance in 2022/23
Many of us will have already seen our National Insurance Contributions increase since April 2022. The rate increased by 1.25 percentage points to 13.25% in April 2022 with the plan being that the additional revenue would be placed directly into the NHS.
From April 2023, this increase will be renamed the Health & Social Care Levy which has been designed to deal with the backlog of patients waiting for treatment after the pandemic and to bring extra funds into the care sector.
Currently, anyone earning under £9,880 does not pay any National Insurance but that threshold will increase to £12,570 on 6th July 2022 so it will have parity with the Income Tax threshold.
That means that although many are paying more National Insurance now, they should see their contributions fall again in July.
If you have any questions about National Insurance, the employers’ contribution or about which Class you should be paying, just get in touch.